Fitch Rates DASNY's $143MM Department of Health Rev Bonds 'AA'; Outlook Stable
The bonds are expected to be offered by negotiated sale on or about Oct. 13, 2016.
The Rating Outlook is Stable.
SECURITY
DASNY Department of Health revenue bonds are secured by annual payments by the Department of Health of patient care and other revenues deposited in the health income fund, subject to annual appropriation.
KEY RATING DRIVERS
DASNY's Department of Health (DOH) revenue bonds are rated 'AA', one notch below the State of New York's 'AA+' Issuer Default Rating (IDR), based on a requirement for annual legislative appropriation of debt service.
New York State's 'AA+' IDR reflects its considerable economic resources, solid economic performance and prospects, strong ability to control the budget and responsive budget management. The state is in a materially improved position to address future economic and revenue cyclicality relative to past experience, in Fitch's view, due to budget management improvements. Liabilities and related carrying costs are above the median for states but remain a manageable burden on resources.
Economic Resource Base
The state's economic resource base is broad although dominated by service sectors. Financial activities are a particularly large and important component of overall economic and fiscal performance, although it is prone to above-average cyclicality. Economic growth is concentrated in the downstate region, home of the nation's largest metropolitan area. Wealth indices are well above average and employment growth has been steady coming out of the recession.
Revenue Framework: 'aaa' factor assessment
New York State's revenue base is diverse and has strong growth prospects, driven by the state's solid economic profile. Taxes in general, and the large personal income tax (PIT) component in particular, are economically sensitive. The state has complete independent legal control over revenues.
Expenditure Framework: 'aaa' factor assessment
The natural pace of New York's spending growth, driven by education and Medicaid funding demands, is likely to be marginally above revenue growth over time, requiring ongoing budget management. The state has ample flexibility to control spending.
Long-Term Liability Burden: 'aaa' factor assessment
New York State's debt burden is just above the median for U. S. states, although net tax-supported debt has declined steadily in recent years. Pensions are well-funded, with unfunded liabilities below the median for states. Overall, liabilities are a low burden on resources.
Operating Performance: 'aa' factor assessment
Operating performance has been aided by improved budgeting practices in recent years, including caps on annual spending growth and conservative forecasting. Formal budgetary reserves are modest, with financial resilience driven by the state's willingness to adjust revenues and expenditures in response to fiscal deterioration. The state's multiyear budget planning process, updated quarterly, and consensus revenue forecasting enable it to stay abreast of changing fiscal circumstances.
RATING SENSITIVITIES
State of New York's Credit Quality: The 'AA' rating on DASNY's Department of Health revenue bonds is sensitive to changes in the state's 'AA+' IDR, to which it is linked.
CREDIT PROFILE
DASNY's DOH revenue bonds are rated 'AA', one notch below the State of New York's 'AA+' IDR, based on the credit quality of New York State and the requirement for annual legislative appropriation of debt service. DOH makes payments for debt service to the trustee from the health income fund under an agreement between DASNY and DOH. The health income fund receives all patient care-related and other miscellaneous operating receipts from six DOH facilities across the state; patient care receipts derive from a wide range of sources, including Medicaid, Medicare, U. S. Veterans Administration reimbursements, Blue Cross and patients' own payments.
Debt service is payable to the trustee 45 days in advance, and the DOH must use best efforts to obtain additional moneys in advance of debt service payment dates in the unlikely event of an insufficiency in available funds. The state's comptroller is required to maintain at all times in the health income fund amounts necessary to fund the obligations of DOH to DASNY over the following six months. Excess patient care-related revenues are available to DOH facilities. A separate building and equipment reserve fund established by DASNY is pledged under the resolution and available in the event of cash flow deficiencies to the extent funds have been deposited. DASNY has established the reserve requirement at approximately $15.5 million, although a portion of these funds have been withdrawn for facility-related capital needs, reducing the balance to $9.6 million. The reserve is not a factor in the rating.
The state historically has had a strong commitment to DOH and its specialized medical care facilities.
Although state general fund revenues are not appropriated for debt service on these bonds, facility operations and the DOH itself are supported from the general fund and other sources. The state also appropriates capital fund resources for facility needs, and the state recognizes DOH revenue bond debt as part of its debt disclosure.
NEW YORK STATE CREDIT QUALITY
New York State's 'AA+' IDR reflects its considerable economic resources, solid economic performance and prospects, strong ability to control the budget and responsive budget management. The state is in a materially improved position to address future economic and revenue cyclicality relative to past experience, in Fitch's view, due to budget management improvements. Liabilities and related carrying costs are above the median for states but remain a manageable burden on resources.
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